Current Thrift Savings Plan Allocation and Business Cycle Analysis – October 2015



TSP FallWelcome back for October 2015’s review of where we are the business cycle and how that impacts my Thrift Savings Plan allocation. I will also touch on my views of the markets overall and something you can do right now to improve the TSP. A few of you may have noticed that I didn’t put out an update in September – the August update came out very late and I wanted to get back to the putting them out earlier in the month. This will get me back on track, at least for a little while.

Bottom line up front: my current TSP allocation remains 85% in the TSP S Fund and 15% in the TSP I Fund (this reflects both my contribution allocation as well as where my existing balances are invested). As we will discuss below, at this point I would also be comfortable with just about any percentage of the TSP C Fund mixed in as well.

TSP Allocation Guide’s performance year-to-date: -4.62% (through market close on 10/02/2015)

Year to date Thrift Savings Plan fund performance:
• TSP C Fund: -3.68%
• TSP S Fund: -4.53%
• TSP I Fund: -2.40%
• TSP G Fund: 1.52%
• TSP F Fund: 1.73%

And the TSP LifeCycle Funds are very average for 2015 so far (just as they are engineered to be), ranging from -2.53% to 0.69%.

My view of the markets

September Thrift Savings PlanIt is beginning to feel an awful lot like 2011 again.You may recall that year the US recovery was booming along nicely, but the European financial crisis hit and threw everyone into a panic. That resulted in US markets essentially being flat for the year (the C Fund up 2%, the S Fund down 3%). The recovery did not fall apart, however, and we followed that up in 2012 and 2013 with the S Fund up 18.5% and 38.55% respectively.

In addition to the Asian financial “funk” which has probably been the dominant theme of the past few months (I don’t think we have reached the point where we can call it a crisis), the pace of the US recovery has undeniably slowed. But I don’t believe that the recovery has ended. As a result, I tend to think that the correction and subsequent market volatility are a temporary phenomenon, which is not to say that temporary might not last for four or five months as it did in 2011.

If you are new to the website and are wondering why I’m not hysterical about the market’s recent volatility like the nice folks on CNBC and some of my fellow bloggers, welcome – and take a look at the last update here: TSPAG August Update

September Economic Numbers:

Getting back to my regular format this month, I will run through the key indicator data I use in determining where I think we are in the economic cycle and what that data means to me in deciding how to allocate my Thrift Savings Plan balance (these indicators are explained in some detail in How to Determine the Current Phase of the Business Cycle).

First up, the US numbers:

Employment numbers: the September jobs numbers were positive and continued the longest private sector job growth streak in US history, but were well below expecations and underwhelming. I obtain this data from the Bureau of Labor Statistics:

Total nonfarm payroll employment increased by 142,000 in September, and the unemployment rate was unchanged at 5.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care and information, while mining employment fell.

TSP Allocation Guide unemployment rate September 2015Not awesome, but at this point we are within the range of full employment and really can’t expect huge numbers each month. Instead, economists will look at more nuanced data such as wage growth and number of workers reentering the workforce to try to figure out if things are going in the right direction.

Purchasing Managers’ Index (PMI): as usual, I pulled up the most recent report from the Institute for Supply Management. Any number above 50 indicates economic growth, and this month’s reading of 50.2 is within that growth range, but just barely. It is worth noting it is the lowest number we have seen in more than a year and it has been trending in the wrong direction:

Economic activity in the manufacturing sector expanded in September for the 33rd consecutive month, and the overall economy grew for the 76th consecutive month.

The September PMI registered 50.2 percent, a decrease of 0.9 percentage point from the August reading of 51.1 percent. Of the 18 manufacturing industries, seven reported growth in September


PMI Thrift Savings Plan

Yield spreads: I obtain my data for this section from the Cleveland Federal Reserve. This month the Cleveland Fed noted:

Using the yield curve to predict whether or not the economy will be in recession in the future, we estimate that the expected chance of the economy being in a recession next September is 3.66 percent, up a bit from August’s at 2.60, and just slightly above July’s 3.05 percent. So the yield curve is optimistic about the recovery continuing, even if it is somewhat pessimistic with regard to the pace of growth over the next year.


Recession probability from yield curve

Money supply growth rate: Money Supply M2 (which includes savings deposits, money market mutual funds and other time deposits which can be quickly converted into cash or checking deposits) continues to expand. Note the improved growth rate in the chart over the past two months. I obtain this data from the Federal Reserve:

Money Supply M2 in the United States increased to 12138.50 USD Billion in August from 12059.10 USD Billion in July of 2015.


Money supply M2TSP S Fund Conclusion:

All of the indicators are pointing in the same direction, although we are not growing at the rate we previously were and several of the indicators bear watching going forward. I believe that we are between the Recovery phase and Growth/Prosperity phase of the Economic Cycle for all of the reasons which I described in my earlier post on The Business Cycle Theory of Investing, and that the chances of the US economy entering recession anytime soon are very low. For that reason, I remain 85% invested in the TSP S Fund, although because I think we are in the grey area between phases I would be just as comfortable with any mix of the S Fund and C Fund.

The TSP I Fund:

I currently have 15% of my Thrift Savings Plan allocated to the TSP I Fund. You will recall that when we talk about the I Fund, 70% of it is made up of large cap stocks from Japan, the UK, Germany, France and Switzerland:

TSP I Fund_-_country weights

It isn’t nearly as simple to look at all of the constituent bits of the TSP I Fund as it is to look at the US economy and draw a conclusion as to where they average out to be in their respective economic cycles. But we can try to get a close approximation by looking at the key economic indicators for the big five players in that universe. Note that there is not necessarily as strong a correlation between these indicators and growth in each of these countries as there is in the US, but it is worth discussing them as a point of comparison with where the US economy is. I’m not going to go into detail on each one, but I will include a link to the brilliant Trading Economics country summary pages which is what I rely on for a snapshot. As I look at these, I tend to focus on GDP growth rate, Unemployment, Money Supply Growth, and PMI:

And after looking at those numbers and factoring in the stimulus efforts of both the European Central Bank and Japan, I’m comfortable with allocating a portion of my Thrift Savings Plan to the TSP I Fund.

Recommended Reading:

I haven’t even finished this one yet, but it is going on the recommended reading page: Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined, by Lasse Heje Pedersen. This is not a Suze Orman ‘investing-made-simple’ type of book, but neither is it outside the range of individual investors. Pedersen breaks down how investment advisers and hedge fund managers make investment decisions in an attempt to outperform the market. This should not be the first book you read on investing, and there are large sections of it which discuss trading strategies I either don’t have any interest in or access to, but it is a fascinating read if you are interested in how finance, economics and investing come together for some of the world’s most successful money managers.

And one more thing – how you can help improve the TSP:

There is fairly broad consensus out there that the Thrift Savings Plan is a fantastic vehicle for federal civilian and military employees to save for retirement. The TSP’s only significant shortcoming, unfortunately, comes when you reach retirement and actually want to access your money. The TSP is incredibly restrictive in how you are allowed to withdraw your funds. They do this to make things simple and hold their costs down, which is good for us because it keeps our costs down, but they are so restrictive that a lot of people immediately roll their TSP balances into other vehicles which are much more expensive but which they can access more flexibly.

If you haven’t looked at it before, you should review the TSP’s Withdrawing Your TSP Account After Leaving Federal Service.

Please do yourself and all of your fellow future retirees a favor and send a letter to:

Thrift Savings Plan
Director of Participant Operations and Policy
77 K Street NE
Washington, DC 20002

Tell the nice people there that you love the TSP and you want to leave your money there until you die, but unfortunately they have made the withdrawal options so limited that you will be forced to pull your money out and put it into an IRA when you retire.

There are some additional areas of concern for those of you who (1) face mandatory retirement ages and as a result will begin drawing on your TSP prior to turning 59.5 and (2) hold some of your balance in a ROTH TSP. New legislation has resulted in a dilemma – as things currently stand, you cannot draw money only from your traditional TSP – if you take any out, it must come out from both the traditional and ROTH TSP accounts. But because you are younger than 59.5, you are taxed on the Roth, resulting in being taxed twice. The TSP needs to (and I suspect soon will) change their rules to reflect the reality of the new law and allow retirees in that situation to make their withdrawals only from the traditional part of their account.

Dan Jamison of FERS Guide fame ( has been leading the fight on this. You can view a copy of his letter here to get some ideas for your own (some of his content really won’t apply to you, but you can certainly cut and paste from other parts).

The Next Update

I will send out a new update next month after all of this month’s data comes in unless I decide to make a change in my allocation or something shocking happens which requires me to send out a new update. I send out a notification of these updates (or allocation changes during the month) to the email list which you can subscribe to here: Subscribe. If you want to see what I am reading throughout the month, I also have a twitter account to which I usually post items of interest which I have stumbled across for investors, Feds and the military about once a day at: @TSPallocation

What’s in it for me?

I don’t ask anything except that you share the site with your colleagues so we can continue to expand the community of feds and service members helping each other in a free, transparent, no-pressure environment. You can do that by linking to this site from your own webpage or blog; liking it on Facebook; sharing on Twitter and in other investing forums; or actively participating on our Message Board. So if you found this post useful, please share it with your friends and colleagues using the email and social sharing buttons below right now. Thanks!


19 thoughts on “Current Thrift Savings Plan Allocation and Business Cycle Analysis – October 2015”

  1. Thanks so much for the update and for the site! I just started working at the beginning of August and this blog is just what I was looking for, for help on investing in the TSP.

    I do have a question about investing. Currently I am 23 years old (fresh out of school) and I believe renting is a large waste of money. So when I’m saving for a down payment on a house is there anywhere “better” for me to put my money than a savings account? I’m sure I’ll be saving for around 5-7 years or so, depending. I obviously don’t want to risk that money too much, so is it even worth it to put it elsewhere?

    1. Everybody has their own level of comfort with volatility. My rule is typically if I think I will be using the in the next 2-3 years, I will seek to protect it. Otherwise, I’m perfectly fine with having it all in the market if that’s where I think the place to be is.

      The down payment for my current house was all in big ETFs until I went into escrow. That might be a little more aggressive than most.

    2. If you are not buying for 5 years put it into a broad index fund with a 4 star Morningstar rating. Pick the one that has a good return, a low beta and that you are comfortable with. Use someone like Fidelity or Schwab that will not charge you a management fee. Most of the index funds will have a cost around 0.2 % or less from these brokers.

    1. I agree. Monthly payments when I need them will be just fine for me. Can’t beat the ultra-low fees in the TSP.

      Re. folks with Roth accounts and mandatory retirement <59.5, if new legislation is needed I would also contact the House and Senate committees that handle federal workforce issues.

      Thank you for another terrific update!

    2. (1) You are limited to one partial lump-sum withdrawal from your Thrift Savings Plan. One you take out that chunk to start a business or pay off debts, you are stuck – you can’t pull out another portion without completely closing your account. (2) Once you decide what is happening to all the rest of your money, you are pretty well locked in. If you select periodic payments from your TSP account, you can adjust the amount only once a year. And the only way to stop the recurring payments entirely is to withdraw the entire account. So you have to make some very serious decisions about exactly how your TSP money is going to be used over your 30-40 year retirement right when you leave service. And once you make those decisions, there is very little flexibility to deal with changing circumstances.

      Personally, I will be completely satisfied if the Thrift Savings Plan just gives us the ability to make multiple lump-sum withdrawals. They can even put some limits on it (minimum size, once per year, whatever), but it is my money and I should be able to access it more freely than the current system allows.

  2. So your performance is worse than any TSP fund YTD through 10/2???

    TSP Allocation Guide’s performance year-to-date: -4.62% (through market close on 10/02/2015)

    Year to date Thrift Savings Plan fund performance:
    • TSP C Fund: -3.68%
    • TSP S Fund: -4.53%
    • TSP I Fund: -2.40%
    • TSP G Fund: 1.52%
    • TSP F Fund: 1.73%

    1. Really? You are busting my chops over being 0.09% behind? I would have been even with the S Fund, but I pushed that little bit into the I Fund in July and that fund did slightly worse than all the other ones during the correction. As always, I’m not even a bit concerned about a month or two – I’m worried about performance over a year or two.

    2. I like your site. Lots of helpful information. I have a question. Do you have a predictive algorithm to determine your fund allocations or to determine when to get out to G when there is a serious downturn in the market?

      1. I don’t have a formula that I plug numbers into which gives a sell signal. What I do is look at the indicators broken out above to determine when the US economy is at high risk of entering recession, which inevitably results in a serious downturn in the Thrift Savings Plan equity funds.

  3. Glad to see the newest update! Especially seeing the news all those weeks ago about the “market correction.” You said that you’d be comfortable with any combination of the C and S fund, and you also have some I fund thrown in. Do you have thoughts on what would be your “perfect” combination of these three funds? Thanks again!

    1. Right now my perfect Thrift Savings Plan combination is 85% TSP S, 15% TSP I, but that is pretty specific to my situation. I have a lot of money in TSP C Fund equivalent ETFs in my other investment accounts which probably gets me to an overall allocation of about 45% small cap, 35% large cap, 10% developed international markets and 10% emerging markets.

  4. My allocation and balance is currently 30% I-fund and 70% S-fund. I’m 29 years old. Would you support a decision to move 15% from the I-fund to the C-fund (both allocation and balance). I’ve really learned a lot about TSP investments from reading your updates by the way!

    1. I can’t give specific advice (yada yada), but in general I think almost any mix of S and C are fine for the bulk of my investments (I expect them to perform similarly). I think the I Fund has enough potential to outperform that I’m okay with the additional risk posed by that fund. I probably wouldn’t go over a 20% allocation to the I Fund at this point with my risk tolerance because of the potential for things to go the other way.

    1. From its high on July 14 to its low on September 29, the S Fund lost 13.22%. It has since gone up 7.17%, so it has already recovered well over 50% of what it lost during the correction. No guarantee that it will keep going up, but we have been going in the right direction so far this month.

  5. I have 25 years of service (and TSP investment) – It’s been 80% (c) and 20% (F) the whole time.

    I’m sure I’ve probably missed a lot of opportunity by not looking at the S fund.

    But now I’m in catch-up mode – I plan on retiring in 7 years.

    Does your recommended split apply in my case? I’m not too concerned yet about risk – but I am a bit concerned about the effect of reallocating several hundred thousand in C fund dollars to the S fund. Would you still prefer S to C in my case?

    And when would you recommend the bond fund?

    Thanks for a great website….

  6. The easy question first – I only go to the bond funds during the onset of a recession.

    The S and C are pretty interchangeable for me at this point in the business cycle and I don’t think one is likely to significantly outperform the other in the near term. I have a lot of money invested in TSP C Fund equivalent ETFs in my non-TSP accounts, so I haven’t felt the need to make a move in my Thrift Savings Plan.

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